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Sixth WTO Ministerial; Conference held at Hong Kong and what it means for the States in India
- G.K. Pillai, Additional Secretary, Department of Commerce
The 6th WTO Ministerial at Hong Kong had right from beginning only a limited objective. It was already very clear from the progress of negotiations at Geneva that the gap between the different positions of various countries in almost all areas of negotiations was too wide to be bridged in a five day Ministerial where 149 countries were negotiating.
The primary objective of the Hong Kong Ministerial was therefore to try and finalise a development package for LDCs. There was also a requirement to show some progress on the Cotton Initiative which is of great concern to a large number of African cotton producing countries. In Agriculture and in NAMA the objective was primarily (as popularly mentioned) to top up the convergences available from the report of the Chairman to the maximum extent possible. The only other issue on which a fair amount of discussion took place was Services. All other issues were postponed for future negotiations after Hong Kong.
Let us take a quick look at what was achieved in Hong Kong. The Ministerial Declaration adopted a package for LDCs in which the developed country members shall, and developing country members declaring themselves in a position to do so should provide duty free and quota free market access on a lasting basis, for all products originating from all LDCs by 2008 or no later than the start of the implementation period in a manner that ensures stability, security and predictability. The caveat being that members facing difficulties could provide duty free and quota free market access for atleast 97% of the products originating from LDCs. Developing country members declaring themselves in a position to do so shall be permitted to phase in their commitments and shall enjoy appropriate flexibility in coverage. In case India opts to take this route it is possible that there could be imports of a number of primary products which could affect Indian agriculture. It is therefore likely that we may adopt an alternative route of preferential access with tariff quota to provide both increased market access to products of LDCs, while at the same time protecting the interest of the Indian agriculture. This is because while the 49 LDCs have significantly high population of people below poverty line or people earning less than $ a day, 75% of persons who earn less than 1$ a day live outside LDCs and a large number of them live in India. It is therefore necessary for us to be prudent and cautious in providing duty free and quota free market access, especially for primary products.
As regards the Cotton Initiative, it was agreed at the Hong Kong that all forms of export subsidies for cotton will be eliminated by developed countries in 2006. It was also agreed that trade distorting domestic support for cotton production would be reduced more ambitiously than any agreed general formula and that it should be implemented over a shorter period of time than generally applicable. Developed countries would also give duty free and quota free access for cotton exports from LDCs from the commencement of the implementation period. The net result of this offer is that in the medium term, there could be a rise in cotton prices ranging from 5 – 15% and this would be good news for our cotton farmers.
In so far as agriculture is concerned, the main gains for India from the Hong Kong ministerial are the following;
(1) India would not be required to make any cuts in de minimis support as well as any overall cut in trade distorting domestic support. As per the existing criteria, India is entitled to provide 10% of the annual value of agricultural production as product specific de minimis support and a further 10% as non product specific de minimis support. This would mean that both the Central and the State Governments would be free not only to continue with the existing subsidy programs but could also increase the same.
(2) It was also agreed that there would be parallel elimination of export subsidies and disciplines on export measures which would be completed by the end of 2013 with a substantial part to be realised by the end of first half of the implementation period i.e., 2010. Although the exact value of the export subsidy/export credits is only of the order of around 10 Billion $, the fact that 50% of the same would be eliminated by 2010 would mean that we could expect a slight rise of 3 – 5% in the world market prices of specific crops like Sugar, Cotton and certain Dairy products which receive these export subsidies. Here again, the key question would be whether the developed countries would actually reduce the amounts provided to the farmers or indulge in box shifting to provide the same amount of support. However since export subsidies are the most trade distorting, their phased elimination would have an impact on the world market prices of some agricultural commodities.
(3) It was also agreed that developing countries like India would continue to benefit from the provisions of Article 9.4 of the agreement on agriculture for 5 years after the end date for elimination of all forms of export subsidies. This means that India would be permitted to provide transport and marketing subsidies for export of agricultural products till the end of 2018.
(4) In so far as our defensive interests are concerned, the major achievement at Hong Kong was the agreement that developing countries will have the flexibility to self-designate an appropriate number of tariff lines as Special Products guided by indicators based on the criteria of food security, livelihood security and rural development. It must however be realised that treatment of such Special Products are still subject to negotiations even though it was agreed in the July framework that more flexible treatment would be accorded to Special Products.
(5) Developing country members would also have a right to recourse to a Special Safeguard Mechanism based on import quantity and price triggers. The inclusion of price triggers was a significant achievement, as there was a wide-spread objection to this trigger being a part of Special Safeguard Mechanism. However, their precise arrangements are to be further negotiated. We would be requesting for the inputs from the State Governments in our further negotiations on this.
In so far as the tariff reduction or market access commitments are concerned, the only agreement was that there would be 4 bands for structuring tariff cuts. The Threshold for these 4 bands for both developed and developing countries as well as the cuts in each band are to be negotiated in the coming months. As per the G-20 proposal, the 4 bands proposed for developing countries are 0 – 30, 30 – 80, 80 – 130 and 130% and beyond. The cuts in the highest band would be 40% with lower cuts of 35%, 30%, 20% in the other bands. However the overall cut shall not exceed 36% on average. In so far as the developed countries are concerned G-20 proposal is that these countries take an average cut of at least 54% with cuts in the highest band of 75%. Disciplines in the Blue Box and any Product Specific Caps, and tightening of criteria for Green Box subsidies are to be negotiated in the coming months. The correction in the distortion in agriculture trade would be based on the effectiveness of these disciplines and their monitoring.
In so far as domestic support to agriculture is concerned, over 85% is provided by the developed countries. The United States has agreed to an overall cut of 53% while the European Union has agreed to an overall cut of 70%. The cuts by the United States primarily reduce the water available and is not a real cut. Negotiations are continuing to have more effective cuts.
As regards NAMA, it has been agreed that all countries would adopt a Swiss Formula with coefficients at levels which shall reduce or an appropriate eliminate tariffs in particular on products of export interest to developing countries. Developing countries would have less than full reciprocity in reduction commitments. A major gain in so far as sectoral initiative are concerned, is that it was agreed at Hong Kong that participation would be on a non-mandatory basis.
It would thus be evident from the above, that the bulk of the negotiations would i.e., in the next 3-4 months. It was agreed at Hong Kong that full modalities in agriculture and NAMA would be achieved no later than 30th April 2006.
Reforms in the agriculture sector in India were extremely slow during the Uruguay round. The critical requirements of improving productivity in agricultural products, amendments to marketing Acts, setting up of agricultural infrastructure including cold storage chains as well as improvement in productivity have been very tardy. It is likely that Indian agriculture may get 4 – 6 years time to carry out these reforms and become competitive in selected sectors.
Government of India is fully aware that agriculture in India is by and large not commercial agriculture. A large segment is subsistence agriculture. Yet it must not be forgotten that we have an opportunity to export our surplus in agriculture obtain greater return and therefore certain sectors of Indian agriculture look abroad for greater market access. Other countries are also looking at increased market access in India. Lifestyles are changing, even if it is only noticeable in a restricted segment of our population. While subsistence agriculture can be protected commercial agriculture will need to become increasingly globally competitive. The Indian farmer has shown that given the right support, he can be globally competitive. This is particularly borne out by the export of Gherkhins primarily from Karnataka to the European Union. We have within the space of a few years of gherkhins captured almost 91% of the imports from outside the European Union and more than 40,000 Indian farmers are receiving higher incomes through export of value added products which go direct to the super market shelves in the EU.
Table 1: indicate the export figures of Indian agricultural products before and after coming into force of the WTO, $ million.
Commodity / 1992/93 to 1994/95 / 1995/96 to 1996/97 / 1997/98 to 1999/00 / 2000/01 to 2003/04Basmati rice / 297 / 354 / 443 / 416
Non Basmati rice / 80 / 703 / 509 / 509
Wheat / 6 / 102 / Ng / 386
Cotton raw inc. waste / 105 / 242 / 38 / 65
Pulses / 23 / 58 / 89 / 73
Oil meal / 616 / 871 / 429 / 499
Sugar and mollases / 66 / 175 / 42 / 339
Marine products / 847 / 1116 / 1206 / 1333
Groundnut / 30 / 105 / 63 / 70
Spices / 171 / 319 / 384 / 330
Tea / 328 / 383 / 447 / 351
Coffee / 213 / 436 / 334 / 224
Tobacco Mfd. & / 131 / 212 / 201 / 206
Cashew / 320 / 370 / 468 / 390
Castor oil / 91 / 185 / 205 / 132
Guargum meal / 42 / 105 / 164 / 99
Poultry & dairy prod. / 28 / 33 / 79
Meat & prep. / 109 / 202 / 233 / 295
Floriculture product / 7 / 20 / 26 / 37
Fresh fruits / 71 / 73 / 115
Fresh vegetables / 106 / 89 / 81 / 153
Processed fruit/veg / 56 / 100 / 137 / 158
Table 2: Figures showing import of selected agricultural products before and after WTO, $ million
Commodity / 1992/93 to 1994/95 / 1995/96 to 1997/98 / 1998/99 to 2000/01 / 2001/02 to 2003/04Food and related items / 748 / 1384 / 2366 / 2812
Cereal preparation / 40 / 23 / 10 / 20
Fruit and nuts / 77 / 127 / 157 / 157
Pulses / 160 / 259 / 120 / 574
Spices / 14 / 29 / 65 / 118
Sugar / 243 / 64 / 176 / 8
Wheat / 0 / 127 / 152 / 0
Veg oil / 102 / 749 / 1658 / 1909
Cashew nut / 166 / 209 / 239 / 215
Cotton Raw / 111 / 13 / 213 / 344
Wood and prod / 185 / 312 / 433 / 553
Total / 1190 / 1996 / 3272 / 4087
Table 3: Post WTO trade scenario for major commodities and implications for future negotiations and strategy.
Product(s) / Trade scene / Main factorRice / Export adversely affected. Import threat / Increased competition from developing countries like Vietnam, Thailand
Wheat / Export adversely affected. Import Threat. / Low prices and subsidies and support in EU and US
Oilcake / Export adversely affected / East Asia crisis and GM varieties in USA, Argentina and Brazil. Subsidies in USA
Sugar / Export adversely affected / Subsidies in EU and USA
Cotton / Export adversely affected. Imports increased / Decline in domestic production and subsidies in USA
Tea, coffee, spices / Export adversely affected. / Competition from Vietnam, Indonesia, Sri Lanka and oather developing countries
Horticulture products / Exports increased. More scope / Rising demand for high value and processed foor
Meat and meat products / Export increased. More scope / Preference for low cost and safe products
Dairy products / Imports possible. Checked through tariffs / Subsidies in EU, USA and Canada
Soyabean oil and other vegetable oil / Serious import threat / Superior technology in other major producing countries
Palm oil / Very sharp rise in import which meets 40% domestic demand / Very cheap price and close substitution between different vegetable oils.
Tables Courtesy: Dr. Ramesh Chand, Director, National Centre for Agricultural Economics and Policy Research.
Agriculture is a State subject and the State Government has an overwhelming responsibility to ensure that the interest of the farming community are fully protected and that they are given full opportunity to enhance their incomes through increased subsidies, better infrastructure and marketing so that the Indian farmers can double or triple his income. This requires detailed micro planning crop wise so that input costs are minimised, productivity improved, marketing channels streamlined and infrastructure improved for our farmers. The next few years will be extremely critical in this regard.